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I am planning to make my affiliate business into an S-corp. I live in California. An advisor told me to make my S-corp in Nevada, so I avoid state taxes. Since I am an affiliate and I don't have a storefront in California, he said I could make my S corp in Nevada and not have to pay California income tax. As long as I make my checking account in Nevada and have a nominee agent and registered agent in Nevada, I should have no problems. What do you guys think?

I am planning to make my affiliate business into an S-corp. I live in California. An advisor told me to make my S-corp in Nevada, so I avoid state taxes. Since I am an affiliate and I don't have a storefront in California, he said I could make my S corp in Nevada and not have to pay California income tax. As long as I make my checking account in Nevada and have a nominee agent and registered agent in Nevada, I should have no problems. What do you guys think?

An S corp or LLC essentially has pass through taxation so any taxable income passes through to your personal income. What is nice about Nevada is the fees are quite a bit less then California and a lot more privacy. I am in the process of setting up an LLC for another venture but will piggy back my affiliate programs through it. Be careful of the single member LLC as it may not shield you from liability.

First, I am sorry you live in CA. It is one of the worst tax states to live in. Very closely followed by NY. BTW, the idoits in the TX legislature are very quickly closing the gap also!

Lets talk about the LLC in CA. It is taxed on gross receipts and not profits. I have had several clients with huge CA LLC tax liabilities but had a net operating loss for federal tax purposes.

An S-corp in CA is hit for a fee of $800 per year. This is regardless of income. The S-corp income/loss then flows to your personal return and you pay the state income tax that way. Because you live in CA, all income will be reported on your personal CA return regardless of where the corp is formed.

A C-corp in CA pays tax based on income just like the federal return and nothing flows to your personal return.

Something you are not considering is what is called sourcing. States take the position that if you have a presence in a state then part of the income/loss is allocable to that state. Most states use a formula of payroll or sales or rent to allocate income. I realize you do not have a store front but what you do have is an office in CA. This will give you what is called "nexus" and this will cause income to be sourced to CA. If CA is the only place where you have a presence, then CA will take the position that everything is allocable to CA.

Bottom line, as long as you live in CA you are going to pay CA state tax either on your personal return or on a corp return.

I do question why you want to go the inc/LLC route? Most of the time, there really isn't a tax savings.